Flight to safety in 09, USD, Gold, Euro, Yen

• Print
• E-Mail

The USD remains stronger than one might think into the beginning of 2009. Between the latest Mid East tensions and general flight to safety it rallied again to 83 on the USDX when it looked like it might crack into the 70's again, the low being 70ish last year, before the USD rallied after April of 08, which caught the commodity and metals complex.

It's hard to say the USD rally last year alone caused the commodity and metals bubble to break, or did the pending world economic slowdown, which caused the speculators to bail out – and/or did the pending economic slowdown then force financial deleveraging on all fronts which flooded money back into the USD as people liquidated?

But, in any case, it's now obvious that there was flight to cash in the second half of 08, and the USD being the major currency still, it ends up being the main settlement currency when there is market deleveraging. So, the USD rallied strongly in the second half of 08 against practically all currencies, except perhaps the Yen which rallied on its own due in large part to carry trade unwinding during all the deleveraging in the second half of 08 too.

Gold spot holds up pretty well though

But, compared to general commodities which took up to an 80 pct bath, or general stocks which took a 40 plus pct bath before recovering a bit recently, gold spot prices held up comparatively well. (I know gold stocks got hit too, but that is a separate issue related to the gold spot price since gold stocks are much more volatile).

So, a very big question is where is the USD going and gold spot price going in 09?

Well, for the USD, we know it rallied heavily against most major currencies such as the British Pound and the Euro. And, will that continue, or hold, or will the USD enter a new phase and again turn down into the 70's on the USDX say by mid 09?

Well, after the world stock sell offs last year, the foreign markets got totally creamed. The prospects of the Western economies turning into a pumpkin pulled foreign markets down drastically. Of course, some are saying these foreign markets are oversold, but I have to say that the prospects of any significant economic recovery in the West is bleak in 09. So what is the rationale for a foreign stock recovery since they are so dependent on exports? A startling statistic that came out recently is that Japan's exports contracted tremendously in 4th quarter 08, for example. China of course is going through the same situation.

Where will flight to safety go in 09, USD or Gold or Euro or?

Some people think there might be an extended world stock rally in 09, but I think we will see worse and worse economic news, and that any stock rally will be short lived. That means there will be ongoing heavy flight to safety forces in 09.